7 Crucial Facts About Contractor’s All Risks (CAR) Insurance in Malaysia Most Contractors Miss

If you’re a Malaysian contractor, developer, or EPC team, you probably already “know” that you need Contractor’s All Risks (CAR) insurance for your project.

But here’s the problem:

Most contractors only buy CAR because it’s stated in the tender or LOA – and never really understand what the policy actually covers (or doesn’t).

The result? Dangerous assumptions, uncovered gaps, and nasty surprises at claim time.

This guide breaks down 7 crucial facts about CAR insurance in Malaysia so you can structure your next project’s cover properly instead of just ticking a box.

1. CAR Has Two Very Different Sections And Most Contractors Only Look at One

A standard Contractors’ All Risks policy is not one big lump of “cover everything”.

It is usually split into two main sections:

• Section I: Material Damage (Contract Works)Covers sudden and unforeseen physical loss or damage to:
  • works under construction
  • permanent and temporary works
  • materials on site (and sometimes off-site/in transit, if extended)
  • in some wordings, construction plant and equipment, if insured
• Section II: Third-Party LiabilityCovers your legal liability for:
  • third-party bodily injury or illness
  • third-party property damage arising out of the contract works

Many Malaysian G7/G5 contractors only look at the contract works sum insured and ignore how much is allocated for third-party liability, or what exactly is insured as “contract works”.

If a crane collapse damages a neighbouring building and injures the public, the Section II limit and wording suddenly matter a lot more than the cheap premium you negotiated.

Takeaway:

Always check:

• Section I sum insured and what’s included as “contract works”
• Section II limit (often too low) and any key exclusions

2) CAR Covers “Sudden and Unforeseen Physical Loss or Damage”, Not Every Problem on Site

Most Malaysian contractors hear “all risks” and assume it means “everything is covered”.

That’s not how CAR works.

Material Damage (Section I) usually covers unforeseen and sudden physical loss or damage from causes like fire, flood, storm, theft, negligence, and accident – except what is specifically excluded.

Typical exclusions include:

• Defective design
• Defective material or workmanship itself (only the resulting damage to properly executed parts is often covered)
• Normal wear and tear, corrosion, gradual deterioration
• Penalties, delay, loss of contract or liquidated damages
• Consequential loss of any kind (unless you’ve bought DSU/ALOP)

So if a beam is installed wrong and has to be re-done with no resulting damage, that’s typically a quality/contract cost, not a CAR claim.

But if the defective beam collapses and damages other correctly built parts of the structure, CAR may cover the resulting damage to the good parts, not the cost of fixing the defective work itself, depending on the wording.

Takeaway:

CAR is designed for accidental, sudden, physical events, not to act as a warranty for poor quality, shortcuts, or design errors.

3) CAR Protection Is Time-Bound. It Stops Once the Project Is Completed (Except for Maintenance)

Another huge misconception in Malaysia:

Contractors think their CAR covers the building even after completion, as long as the policy end date on the certificate hasn’t passed.

In reality, CAR is meant to protect during the construction/erection period and (optionally) the maintenance/defects liability period, not for the life of the building.

The cover usually:

• Starts when:
  • site works commence, or
  • materials are first unloaded at site (depending on policy), and
• Ends when:
  • the project is handed over, put into use, or taken into operation, and/or
  • the maintenance period expires

Any damage that occurs months after handover is usually a matter for Fire / IAR / Property insurance, not CAR.

Takeaway: CAR is a project-phase cover. For the completed building, you (or the owner) still need a Fire / IAR / Property policy once the project is operational.

4. A Standard CAR Policy Is Not Automatic “All-In”

Another common misunderstanding: “Once I buy CAR, everything on site, including my crane, my principal’s existing building, off-site storage and delays – is automatically covered.”

The above is not true.

Most Malaysian CAR policies can be extended, for additional premium, to include:

• Contractor’s plant and equipment (CPE)
• Construction machinery
• Principal’s existing/surrounding property
• Removal of debris
• Professional fees (architects, engineers)
• Off-site storage and transit within Malaysia
• Riot & strike, malicious damage
• Maintenance visit cover
• Delay in Start-Up / Advance Loss of Profit (DSU/ALOP) for eligible projects

However, these are not always included by default. Many local wordings only cover the contract works unless you:

• specifically add these items
• declare sums insured
• pay the premium for them

If your tower crane is worth RM3 million and you never declared it or added CPE cover, don’t be surprised when an accident isn’t fully covered.

Takeaway: Review your schedule and endorsements. If something important isn’t listed with a sum insured or limit, don’t assume it’s covered.

5. CAR Is Not a Substitute for Workmen Compensation, Professional Indemnity, or Property Insurance

Because CAR includes a Third-Party Liability section, many contractors think:

“I don’t need separate liability or worker coverage – CAR already covers everything.”

In reality:

• Section II (Third-Party Liability) is for:
  • bodily injury to third parties (non-employees)
  • damage to third-party property

CAR does not replace:

• Workmen Compensation (WC) or Employee Benefits
  • Employees injured while working are usually covered by WC / SOCSO / employer schemes, not CAR
• Professional Indemnity (PI) / E&O
  • CAR doesn’t cover your professional advice, design liability, or consultancy errors; that’s PI
• Property or Fire/IAR for completed buildings
  • Once the building is handed over or in full use, standard property insurance should take over.

Takeaway:

Think of CAR as one piece of a full insurance programme, not a “one-policy covers everything” solution.

6. CAR vs EAR: Using the Wrong Policy Can Leave Big Gaps (Especially for M&E and Solar)

For many Malaysian EPCC and M&E contractors, the line between Construction All Risks (CAR) and Erection All Risks (EAR) is often blurred.

Common mistake:

Employers insist on CAR in the contract even when the project is primarily erection/installation of plant, machinery or solar equipment, where EAR might be more appropriate.

Broadly:

• CAR → building and civil works (structures, roads, bridges, general construction)
• EAR → installation/erection and testing of machinery, mechanical/electrical systems, plants, solar farms etc.

Some Malaysian insurers issue combined CAR/EAR wordings, but the risk classification, rating and conditions may still differ depending on whether it’s “civil works” or “erection/installation heavy”.

If your contract is heavily driven by machinery, testing & commissioning, and performance guarantees, you should at least ask:

• “Is a pure CAR policy the right form here?”
• “Should we be on an EAR or CAR/EAR combined wording instead?”

Takeaway: Match the policy type (CAR vs EAR) to the dominant nature of the project: civil vs erection  or you may end up under-insured during critical testing/commissioning phases. Don’t worry as Foundation will ensure that you get the right coverage.

7. CAR Claims Are Not Automatic:

Many contractors assume that if there’s damage on site, the loss adjuster will “sort it out” and maximise their claim.

In practice, loss adjusters are appointed to protect the insurer’s interests, not yours. Proper claims preparation and documentation on the insured’s side is critical, especially for large, complex losses.

Common issues that reduce or delay CAR claim payouts in Malaysia:

• Under-insurance of contract works (sum insured too low vs final contract value)
• No clear breakdown between materials, plant, and temporary works
• Poor documentation of project progress, variations, and VO values
• Breach of policy conditions (e.g. neglecting safety requirements, warranties)
• Late notification of loss or incomplete claim file

Good practice includes:

• Keeping your sum insured updated when contract values change
• Recording variations and VO clearly
• Retaining photos, drawings, invoices, method statements
• Reporting losses quickly, with initial facts and supporting documents

Takeaway: The way you structure, document, and manage your CAR policy before a loss has a direct impact on how smoothly and how much you get paid when something goes wrong.

Quick FAQ: What CAR Actually Covers (in Plain Language)

Q1: What does Contractor’s All Risks (CAR) insurance actually cover?

CAR generally covers:

• Damage to the works being built (Material Damage / Section I)
• Your legal liability to third parties for injury or property damage arising from the works (Third-Party Liability / Section II)

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Q2: Does CAR cover design errors or bad workmanship?

Usually, no. Most wordings exclude the cost to fix defective design or workmanship itself, but may cover the resulting damage to other correctly executed parts.

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Q3: Does CAR cover delay, LDs, or loss of profit?

Not by default. Consequential loss, delay and penalties are normally excluded unless you’ve bought a DSU/ALOP extension (and even then, strict conditions apply).

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Q4: Are my cranes, excavators, and machinery automatically covered?

Not always. Some insurers only cover these if they are specifically declared with sums insured, or under a Contractor’s Plant & Machinery (CPM) or CPE extension.

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Q5: Do I still need Workmen Compensation and Property insurance?

Yes. CAR does not replace employer obligations under Workmen Compensation/SOCSO, nor does it protect the completed building after handover, that’s the job of Property / Fire / IAR insurance.

What Should Malaysian Contractors Do Next?

If you’re a G7/G5 contractor, developer, or EPC in Malaysia, and you’ve been treating CAR as “just another contract requirement”, here’s a simple checklist for your next project:

1. Clarify who is insured – principal, main contractor, subcontractors.
2. Confirm Section I & II limits – are they realistic for the project size and third-party exposure?
3. List what’s actually included – contract works, plant, machinery, principal’s existing property, debris removal, etc.
4. Match policy type to project – CAR, EAR, or CAR/EAR combined.
5. Align with the contract – check the insurance clause against the policy wording.
6. Plan for claims before they happen – documentation, valuations, VO tracking, safety compliance.

Get these right, and CAR stops being a confusing piece of paperwork and becomes what it’s supposed to be: a practical financial safety net for your project works and your balance sheet.